If you are wondering whether or not homeownership builds wealth, you can rest assured that a well-planned home purchase can do wonders for your family’s future financial stability. However, buying a home is a multifaceted decision and your individual situation can play a huge role in whether or not it is a good idea for you and your family to purchase real estate. So how can you decide if buying a home is the right decision for your family?
The main thing to consider is how long you are planning to live in the area
A general rule of thumb is that if you are planning to stay in the area for more than 5 years, you should buy a home. If you will be living here less than 5 years, renting might be a better choice. This is because there are costs associated with purchasing a home, including home inspections, real estate agent fees, and loan origination fees. Over a shorter time frame, your home might not increase in value enough to outweigh these initial costs. As a long-term investment, real estate can be tough to beat.
In general, residential properties tend to appreciate
While there are certain areas in which property values are stagnating, the vast majority of American homes have been steadily appreciating over time. This means that each year, your real estate investment will grow. Even during downturns in the market, you will have a tangible asset backing up your investment.
If you choose to sell your home after 5-10 years, your property will most likely have appreciated and your loan to value ratio, or LTV, will have gone down. Each month, when you pay your mortgage payment, part of your payment will go towards decreasing the principle of the loan. This investment can be recouped when you sell your home. However, the profit you make when selling a home can be greater than the principal paid over the life of the loan. This is due to appreciation.
If your home is located in an up and coming neighborhood, it could be worth tens of thousands or even hundreds of thousands more than when you bought it. You will not need to pay capital gains taxes on this return on your investment, meaning that you are free to put it all towards a down payment on your new home or another investment.
If you choose to stay in the home until the mortgage is paid off, this means that you will not have to worry about paying rent or a mortgage on your primary residence during retirement. This can be a great way to help your existing retirement savings last you much longer. Your cost of living will be much lower once you do not have a mortgage to contend with. In fact, your housing costs after the home is paid off will be limited to your property taxes, insurance, and any applicable homeowners association fees.
Another money saving benefit of homeownership is that your mortgage payments will remain constant
While rental prices will continue to rise each year due to inflation and appreciation, your mortgage payments will not change unless you choose to refinance your home. This means that each year, your mortgage payment will seem lower compared to the area’s rental prices. In many cases, owning a home can end up being much more affordable than renting long term.
If you are in the market to buy, and would like to learn more about how you can build wealth by investing in real estate, contact me today!
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